Leucadia puts maximum loss exposure due to involvement with FXCM at $241.4m at end of Q3’2017

Maria Nikolova

Leucadia reiterates that it does not hold any equity interest in Global Brokerage Inc and that its senior secured term loan is with FXCM.

Leucadia National Corp. (NYSE:LUK) estimates that its maximum exposure to a loss as a result of its involvement with FXCM was at $241.4 million at the end of the third quarter of 2017. This becomes clear from the latest Leucadia 10-Q filing with the United States Securities and Exchange Commission. The total, Leucadia explains, is a sum of the carrying value of the term loan ($70.8 million) and the investment in associated company ($170.6 million).

In the report, Leucadia reiterates that it does not hold any equity interest in Global Brokerage Inc (NASDAQ:GLBR), formerly known as FXCM Inc, and that its senior secured term loan is with FXCM. This clarification should have been expected, as Global Brokerage has warned of the risk of being delisted and that this may result in a default. Moreover, Global Brokerage is implicated in a number of lawsuits in the United States, as stockholders and clients accuse the company of misleading them about its business model and causing them heavy losses.

Leucadia has the right to require a sale of FXCM beginning in January 2018. Distributions to Leucadia under the amended agreements are now: 100% until amounts due under the loan are repaid; 45% of the next $350 million; then 79.2% of the next $500 million; and 51.6% of all amounts thereafter.

In the meantime, the Leucadia loan to FXCM has attracted the attention of the Delaware Chancery Court. In a Memorandum Opinion issued on September 29, 2017, Vice Chancellor Sam Glasscock III said entire fairness review is appropriate with regard to the Leucadia deal. The questions before the Court include whether the Leucadia loan represented a waste of assets and whether the terms of the transaction were unfair to the broker.

“I have found it reasonably conceivable that entire fairness review is invoked here. Under that standard of review, it is appropriate that I examine the transaction with a full record”, said Vice Chancellor Glasscock.

The “entire fairness standard” is triggered in cases where a majority of the directors approving the transaction are interested or where a majority stockholder stands on both sides of the transaction. When the entire fairness standard is applied, the corporate board has the burden to demonstrate that the transaction is inherently fair to the stockholders by demonstrating both fair dealing and fair price.

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